Mohamed El-Erian, chief executive and co-chief investment officer of Pimco, one of the world's biggest bond fund managers, resigned Tuesday in the wake of a year of disappointing returns for the Newport Beach-based firm.

Douglas Hodge, the company's chief operating officer, will take over as CEO when El-Erian departs in mid-March, Pimco announced.

The shake-up comes as investors pulled out a net $41.1 billion from Pimco's flagship Total Return Fund in 2013, a record for the mutual fund industry, leaving the fund with assets of $237.3 billion. According to Morningstar data, the fund lost 1.92 percent in total return last year, following a 10.4 percent gain in 2012.

Last year was the first year the fund has lost money since 1999.

El-Erian, 55, has been a highly visible presence on the national financial scene, with frequent television appearances to comment on the markets and the overall global economy.

In the wake of the financial crisis, he espoused a concept dubbed the “new normal” – the idea that economies will grow more slowly and market returns will dwindle. He is the author of a 2008 best-seller “When Markets Collide.”

Overall, the bond market has experienced three decades of bullish returns. But performance has tanked in the past year, as interest rates rose and investors sank more money into stocks.

“Pimco didn't have a meaningful alternative product line beyond fixed income,” said Geoff Bobroff, a mutual-fund consultant based in East Greenwich, R.I.

El-Erian led Pimco's push to diversify, starting an equity fund and launching exchange-traded funds and hedge funds. But the effort was unsuccessful. Pathfinder, the firm's largest stock fund, returned 9.5 percent last year, trailing 91 percent of peers, according to data compiled by Bloomberg. The emerging-markets fund, the second biggest, returned 13 percent, behind 88 percent of peers.

“The question for these firms with big fixed-income investments is what will happen over the next five years,” said Jane Buchan, CEO of Irvine-based PAAMCO, a fund of hedge funds. “Most people see mediocre to lousy returns. And that is a hard place to be if you are paid to manage people's money.”

El-Erian, the son of an Egyptian diplomat, worked at the International Monetary Fund for 15 years, eventually rising to deputy director.

After a stint at Citigroup, he joined Pimco in 1999, where he became known as a savvy investor in emerging markets.

In 2006, El-Erian left to manage Harvard University's endowment, a prestigious post.

But two years later, Allianz S.E., a German multinational which had bought Pimco – whose formal name is Pacific Investment Management Co. – in 2000 and taken it private, wooed El-Erian back. Allianz offered him the post of co-CEO and co-chief investment officer, a move widely seen as an effort to bring in a younger executive who could be nurtured as the firm's new star as Gross, 69, neared retirement.

As recently as 2012, Gross had called El-Erian “my heir apparent.”

“Obviously something occurred that caused El-Erian to decide to move on,” Bobroff said. “El-Erian is a young man and Bill is in his descendant period – he's not necessarily in decline, but he's no longer rising.”

El-Erian will remain a member of the Allianz International Executive Committee and, as of mid-March, will also advise the Board of Management of Allianz on global economic and policy issues, Pimco announced.

Hodge, the chief operating officer who will replace El-Erian, is a 24-year veteran of the company. From 2002 to 2009, he led Pimco's Asia Pacific region from the firm's Tokyo office.

The firm named Jay Jacobs, most recently head of global talent management, as president. Previously, Jacobs ran Pimco's German business and served as a member of the fund's German management team.

Two executives will take posts as deputies to Gross: Andrew Balls, currently a managing director in the London office, and head of European Portfolio Management, and Daniel Ivascyn, a managing director in the Newport Beach office and Head of Mortgage Credit Portfolio Management.

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